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Oil Prices Plunge Over $4 To End Below $127 a Barrel

Reuters
Thursday, 29 May 2008 | 2:03 PM ET

Oil prices dropped over $4 to below $127 a barrel as concerns about global energy demand and strength in the dollar countered the biggest weekly decline in U.S. stockpiles since 2004.

U.S. crude settled down $4.41 at $126.62 a barrel, while London Brent gave up $4.04 to $126.89 a barrel.

The decline extends oil's retreat from last week's record above $135 a barrel amid growing signs that global energy demand growth is slowing under the strain of high costs and economic turmoil in the United States.

Gains in the U.S. dollar after a report that the U.S. economy grew in the first quarter at a faster pace than previously estimated added pressure to commodity markets by diminishing the purchasing power of buyers using other currencies.

Oil had briefly surged into positive territory Thursday morning after the U.S. Energy Information Administration released a report showing an 8.8 million-barrel drop in U.S. crude stockpiles, the biggest fall since a hurricane shut offshore oil platforms in September 2004.

The unexpected decline "was due to temporary delays in crude oil tanker off-loadings on the Gulf Coast," EIA said.

Louisiana Offshore Oil Port (LOOP), the nation's only U.S. deep-water port, said Thursday some crude oil tankers canceled scheduled deliveries last week.

"Once again, on further review, we should not read too much into one week's report from the EIA," said Phil Flynn, analyst at Alaron Trading in Chicago.

Analysts in a Reuters poll had forecast the stock level to be unchanged.

Stockpiles at Cushing, Oklahoma, the delivery point of U.S. crude traded on the New York Mercantile Exchange (NYMEX), increased 700,000 barrels, according to the EIA, also tempering the bullishness of the report.

The EIA said Wednesday U.S. oil demand in March fell to the lowest level for that month in five years, the latest sign that consumers are cracking under the strain of high oil prices.

In Britain, gasoline demand in April fell 7 percent from a year ago while diesel demand fell nearly 2 percent, government data showed Wednesday.

Asian countries have also been reviewing fuel subsidies, which have sheltered drivers from the shock of steep price rises, intensifying fears of an Asian energy demand slowdown.

India's oil minister, Murli Deora, said on Thursday that the government will take a decision on raising fuel prices in the next two to three days.

Taiwan, Indonesia and Sri Lanka have already raised domestic fuel prices.

CFTC to Grab More Data on Futures Trading

The U.S. Commodity Futures Trading Commission said it will collect more information on energy trading in futures markets, including data on contracts based on West Texas Intermediate (WTI) oil that are traded in the United Kingdom.

The CFTC's action comes after U.S. lawmakers have hammered the agency for months to improve monitoring of energy markets and crack down on hedge funds and other speculators they blame for pushing up crude oil and gasoline prices to record levels.

The CFTC said it reached an agreement with the United Kingdom Financial Services Authority and ICE Futures Europe for expanded information-sharing for surveillance of energy commodity contracts with U.S. delivery points, including the WTI crude oil futures contracts that trade on both the New York Mercantile Exchange and ICE Futures Europe in London.

U.S. crude oil prices plunged more than $4 to below $127 a barrel as traders shrugged off a sharp drop in crude supplies and the dollar strengthened broadly.

On the New York Mercantile Exchange, July crude last traded in the open-outcry floor session down $4.53 or 3.46 percent at $126.50 per barrel, having traded from $126.11 to $133.12.

The decline extends oil's retreat from last week's record above $135 a barrel amid growing signs that global energy demand growth is slowing under the strain of high costs and economic turmoil in the United States.

Gains in the U.S. dollar after a report that the U.S. economy grew in the first quarter at a faster pace than previously estimated added pressure to commodity markets by diminishing the purchasing power of buyers using other currencies.

Oil had briefly surged into positive territory Thursday morning after the U.S. Energy Information Administration released a report showing an 8.8 million-barrel drop in U.S. crude stockpiles, the biggest fall since a hurricane shut offshore oil platforms in September 2004.

The EIA said the decline was due to delays in tanker movements along the Gulf Coast that bit into imports.

"Once again, on further review, we should not read too much into one week's report from the EIA," said Phil Flynn, analyst at Alaron Trading in Chicago.

Analysts in a Reuters poll had forecast the stock level to be unchanged.

Stockpiles at Cushing, Oklahoma, the delivery point of U.S. crude traded on the New York Mercantile Exchange (Nymex), increased 700,000 barrels, according to the EIA, tempering the bullishness of the report.

DEMAND SLOWING The EIA said Wednesday U.S. oil demand in March fell to the lowest level for that month in five years, the latest sign that consumers are cracking under the strain of high oil prices.

In Britain, gasoline demand in April fell 7 percent from a year ago while diesel demand fell nearly 2 percent, government data showed Wednesday.

Asian countries have also been reviewing fuel subsidies, which have sheltered drivers from the shock of steep price rises, intensifying fears of an Asian energy demand slowdown.

India's oil minister, Murli Deora, said on Thursday that the government will take a decision on raising fuel prices in the next two to three days.

Taiwan, Indonesia and Sri Lanka have already raised domestic fuel prices.

Oil prices fell toward $126 a barrel after an unexpected decline in crude oil last week that was due to temporary delays in unloading oil tankers along the Gulf Coast.

Retail gas prices, meanwhile, rose to a new record above $3.95 a gallon.

In its weekly inventory report, the department's Energy Information Administration said crude oil inventories fell by 8.8 million barrels last week, while gasoline supplies fell by 3.2 million barrels. Analysts surveyed by energy research firm Platts had expected slight increases in supplies of both.

But the EIA also offered a rare explanatory note on the Gulf Coast tanker problems. Gulf ports have closed many times in recent months due to fog, said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago.

"This is the worst year I can remember for fog," Flynn said.

Also putting some weight on prices were supplies of distillates, including heating oil and diesel fuel, which rose by 1.6 million barrels last week, double what analysts had expected.

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